Democrats, Republicans Dispute Size of Structural Deficit — and What It Means

Christie has used structured gap to campaign against incumbents, challengers; now he says he’s closed it — although Moody’s disagrees

Credit: Martin Griff
Assemblyman Gary Schaer
As a Republican challenger nearly a decade ago, Chris Christie used the routine Trenton fiscal exercise of calculating the “structural deficit” to attack the budgeting skills of then-incumbent Democrat Jon Corzine.

But with Christie now in his last year in office, and with budget stability still an issue for the state, Democrats are using the same deficit analysis to skewer the GOP governor.

The structural-deficit issue was a point of contention during a recent Assembly Budget Committee hearing, as Democrats zeroed in on the latest calculation prepared by nonpartisan legislative analysts to show that, despite Christie’s claims of budgeting prowess, New Jersey is still underfunding its financial commitments by billions of dollars.

Persistent structural imbalance

And when state Treasurer Ford Scudder tried his best to defend the second-term Republican governor during the hearing, the Democrats persisted, noting that in the latest downgrade of New Jersey’s credit rating by Moody’s Investors Service there was a warning about the state budget’s “persistent structural imbalance.” The Moody’s critique seemed to conflict with claims that Christie made only a few weeks ago when he bragged of facing down a “projected deficit of $10.7 billion.”

“Apparently, he did what was necessary to stabilize the state’s finances,” Assembly Budget Chairman Gary Schaer (D-Passaic) said with seeming sarcasm during the hearing last week.

“I don’t want to go back and forth on this, but I do want to get some clarity if I can,” Schaer said, after asking Scudder for a list of the things Christie has done to address the structural deficit.

For years, analysts from the state Office of Legislative Services, which is the Legislature’s nonpartisan research arm, have measured the difference between projected state revenues using all current taxes and the projected spending that all current programs call for. The difference between projected revenues and projected spending is then referred to as the “structural deficit.”

A tool for policymakers

In practice, the structural deficit has proven to be a useful tool for policymakers. It gives governors and lawmakers the information they need each year to decide whether to raise taxes or underfund existing programs to keep spending in line with revenues — something that’s required by the state constitution, which forbids real deficits.

Typically, the exercise produces a wide structural gap because governors and lawmakers have made far more spending promises than revenue generated by state taxes and other sources can typically cover.

For example, Christie’s own signature pension-reform law calls for the state contribution into the public-employee pension system to total $5 billion, but the governor’s proposed budget for the 2018 fiscal year sets aside $2.5 billion for the pension payment, leaving a $2.5 billion gap. Laws on the books for education funding, municipal aid, and property-tax relief also call for billions more in spending than the Christie administration has been providing in recent years, adding to the structural gap or deficit.

But just as the structural-deficit analysis has proven useful for those making policy decisions over the years, it has also been a favorite for those seeking to craft effective political messages.

Scoring points

In fact, Christie has repeatedly used the structural-deficit analysis to score points, both as a gubernatorial candidate and as a U.S. presidential hopeful. For example, during a 2013 gubernatorial debate against then-Democratic challenger Barbara Buono, Christie claimed he “closed an $11 billion budget deficit without raising taxes,” a direct reference to an OLS tally that showed the structural deficit increased to $10.7 billion during Christie’s first year in office as the Great Recession caused state tax collections to plummet.

Before Christie dropped out of the GOP presidential primary in early 2016, he often bragged on the campaign trail of bringing New Jersey’s budget into balance after inheriting “an $11 billion budget deficit.” More recently, Christie made a reference to the structural-deficit calculation during his late-February budget address before state lawmakers, pointing to the “dark, dark days” of his first term in office when he faced a “projected deficit of $10.7 billion.”

But during last week’s budget committee hearing, Schaer pressed Scudder on the structural-deficit issue, referring to the downgrade announced by Moody’s last week. At one point, Schaer also read aloud some of the governor’s own statements to drive home the point that the structural problems remain largely unresolved; the most recent calculations from OLS show a gap of about $8 billion, despite Christie’s claims.

After Schaer continued, Scudder suggested that the Christie administration is no longer abiding by the OLS analysis and has formulated an altogether new approach to the budget’s structural problems.

Changing the terms

“Prior to this administration, every statutory requirement was endeavored to be funded by ever-increasing taxes upon the populace of New Jersey,” Scudder said. “This administration has taken a different tact in saying we need to live within our means such that our taxpayers can live within theirs.

“I think that’s the appropriate path to take,” he said.

But that brought out an immediate response from Schaer, who noted Scudder’s new take on the issue conflicts with Christie’s own repeated references to the OLS’s method for calculating the structural deficit. He also asked whether Christie believes the state should aspire to fully fund property-tax relief, school aid, and municipal aid.

“If those three categories are not part of the structural deficit, what is part of the structural deficit?,” Schaer asked.

The Democrat’s barbs echoed a line of attack that Christie himself used against Corzine in 2009 as the two were locked in a close battle for the governor’s office. At the time, Christie said Corzine should abandon his reelection effort “out of shame,” because the structural deficit as calculated by OLS was roughly $8 billion. Republican lawmakers then piled on, calling for a special session to address the gap.

But a year later, Christie had another take on the structural-deficit issue, saying the OLS calculation was “completely fake.”